VRL's stake sale in Vedanta not enough for stable rate outlook: S&P

The UK-based Vedanta Resources' move to sell stake in its Indian-listed subsidiary Vedanta Ltd is credit positive but not enough to keep the rating outlook stable, analysts at S&P Global Ratings said.

The rating agency downgraded the outlook for Vedanta Resources Ltd (VRL) to 'negative' from 'stable' to factor in heightened refinancing risk as the company's access to cash flow from its operating subsidiaries has weakened while external financial conditions, too, have become challenging.

S&P Global Ratings has, though, retained its 'B-' long-term issuer credit rating for Vedanta Resources.


Twin Star Holdings - one of the promoters of Vedanta Ltd - sold a 4.3% stake in the company last week. The stake sale has helped mop up $500 million at a time when Vedanta Resources' has several upcoming debt obligations, and has been leaning on cash generated at its operating subsidiaries, including through dividends.

"The $500 million that the company raised was an important step, and it meets a significant part of the most immediate part of the debt maturities, but there are still large funding gaps - $600 million up to March 2024, followed by more than a $1 billion gap between April and August," analysts at S&P said in a webinar on Monday.

"Even at the 'B-' rating level, you need to have a horizon that is slightly larger than the immediate bond maturity," they said.

Vedanta Resources has about $3 billion of debt due between now and August 2024, and S&P estimates that the company could have a funding gap of as much as $2 billion until August 2024.